3 Percent Withholding: An Update and a Call to Action:

My first column of 2007 focused on this year’s top legislative priority for NECA members and thousands of other contractors winning repeal of Section 511 of the Tax Increase Prevention and Reconciliation Act; unless it’s repealed, all government entities—federal, state and local—will be required to withhold 3 percent from all payments for any goods or services, and this requirement is particularly hard on contractors.

While 3 percent may not sound like much to the government, it exceeds the average pre-tax profit margin in construction and is larger than the profit margins permitted under many government contracts.
The problem is compounded when contractors are subjected to having up to an additional 10 percent of progress payments withheld. Not only does impeded cash flow jeopardize a contractor’s ability to complete a current project, the ability to secure bonding and compete for future jobs is also imperiled because surety companies look for a healthy cash flow, strong margins and timely payments before they’ll provide the necessary support.

In January’s column, I was able to provide some good news about how the National Electrical Contractors Association (NECA) led a successful effort to head off an attempt to move up imposition of the withholding requirement from 2011 to 2007. It was a case where swift and concerted constituent action led to an interim victory, all within the space of a few hours on a Friday afternoon.

Now, I have an update and more good news to report: Bills to repeal Section 511 have now been introduced in both the House and Senate. They are HR 1023, cosponsored by Rep. Wally Herger (R-Calif.-02) and Rep. Kendrick Meek (D-Fla.-17), and S 777, introduced by Sen. Larry Craig (R-Idaho). How the bills came about points to what we contractors must do in order to gain their passage.

In a videotaped interview for “Capitol Currents,” NECA’s online government affairs magazine (www.necanet.org/government), Rep. Herger explained why he began leading the charge for repeal last year and stepped up his efforts in this Congress. “I heard from contractors on this issue,” he said.

The congressman indicated that those contractors who made the effort to visit him in his home office in Chico, Calif., made an especially strong impression. And, he urged contractors everywhere to follow their example. He said a good time to find members of Congress in their home districts is during recesses, such as at Easter, the Memorial Day break or the entire month of August. He also advised contractors to make a point of reaching out to Democratic legislators since their party controls the Congress’ balance of power.

Early next month, hundreds of contractors, representing NECA and a handful of other construction organizations, will storm Capitol Hill during the 2007 Campaign for Quality Construction National Issues Conference, May 1–3. I’m sure they will make some headway in educating the lawmakers on what’s wrong with the 3 percent withholding scheme, and they will address some other key issues, as well.

But, please, don’t leave it all up to them. With so many issues competing for Congress’s attention, all its members need to hear—promptly and repeatedly—why Section 511 must be repealed. And, they need to hear it from the people who have the power to keep them in office or throw them out—their constituents back home.

Make those phone calls. Send those faxes and e-mails. And, if at all possible, visit your representatives and senators face to face. The withholding requirement would hit us all where we live, so we need to fight it on our home turf as well as in the halls of Congress.